Value Addled: How Gyrating Gem Prices Affect Your Bottom Line

If you study past and present market fluctuations, you’ll be better equipped to adjust your selling prices – and to explain gem values to your customers.

Since gemstone prices fluctuate, you as a jeweler need to adjust your selling prices to be competitive in a changing market. You also need to be prepared to respond to customers who ask if certain gems will rise in value, providing solid information on pricing trends without being misleading about the pitfalls of buying gems as an investment. Knowledge of how and why markets have reacted not only will increase your ability to keep your prices in line, but also will increase your clients’ confidence in you.

The competitive edge. The timeless beauty of ruby, emerald, and sapphire has created an insatiable desire for these gems throughout history. But current events also affect the market. For example, the political unrest roiling Myanmar (formerly Burma) has created a fluctuating supply of gems from that country. Many gems from Myanmar are smuggled into Thailand, where they’re sold. For years, the government wouldn’t allow foreigners to even visit the mining areas. While restrictions have eased, smuggling continues today.

Conditions in the countries where gems are mined also play a role in the rise and fall of prices. Many gems are mined in Third World countries. The mines are located in remote areas plagued by disease, temperature extremes, or lack of water. Many miners have died because of unsafe conditions or have even been murdered by gem poachers. If floods, earthquakes, or other disasters hit, then prices of gems from that area will rise, at least in the short term. However, prices for the gem variety as a whole may not automatically rise if there are adequate sources from other regions.

While automation has come to some areas, most gem mining, especially in the remote areas, is still done by hand. Mechanization allows more gems to be mined, but only if the pocket is producing. If not, the cost of mechanization will cause greater and faster losses.

Coping with change. If gems you’ve purchased have dropped in value – emeralds, most likely – you may need to lower your selling price to be competitive. It may hurt at first to lose profit, but it’s wise to turn inventory and buy fresh items that move. Don’t forget that some gems merit an increase in selling price. Take chrome tourmaline. Between 1986 and 1991 (just five years), prices tripled. If you didn’t keep up with the increases, you lost the opportunity for additional profit.

An extreme case is tanzanite, whose price has taken a roller coaster ride of rises and dips that has weakened the stomachs of many in the trade. At any given time, a jeweler who hasn’t studied the market could be selling tanzanite at a price that’s 10% to 20% too high or too low.

Customers tend to believe that the gems they purchase will rise in value, and it’s likely that you will be called upon to explain the nuances of gemstone investment to a client. It’s wise to caution customers that gem prices don’t always increase. The consumers who are most satisfied with their purchases are those who buy gems for their inherent beauty and romantic appeal rather than as an investment. As the following examples show, there are no guarantees when it comes to gem prices.

Ruby highs and lows. For investors, the years 1979 and 1980 were very good. Returns were high from varied investment opportunities, including gold and silver, which were skyrocketing in price. Diamonds also looked attractive to investors – prices for a 1-ct. D flawless climbed toward $65,000. Ruby dealers cashed in on the lure of investment in gems, and ruby prices quickly rose. Dealers promised annual increases exceeding 25% to wealthy clients looking to invest. By 1981, however, prices for gold, silver, and diamonds were dropping, and rubies were soon to follow. After prices bottomed out, rubies began to slowly recover. For the rest of the ’80s and into the ’90s, ruby prices appreciated modestly.

Then, in the mid-1990s, the ruby market again headed south. One factor was the discovery of Burma rubies mined at Mong Hsu, first reported in 1991. These rubies, which are very similar in appearance to the rapidly dwindling classic Burma rubies from Mogok, could be purchased for a very reasonable price. They took the market by storm. The influx contributed to a 20% to 30% plunge in ruby prices.

Also hurting ruby prices were new enhancement techniques, which began to dominate all discussions of these gems. The new rubies from Mong Hsu were being heated to higher temperatures. To protect the gems from the extreme heat, borax was used. As the borax melted, it became a glass-like substance that filled the surface fissures. The controversy began because at first, the gem dealers didn’t disclose this glass filling. Today, those in the trade are still debating whether unintentional glass filling from borax is acceptable. Some dealers even debate whether the glass filling needs to be disclosed. Meanwhile, prices have come down, in part because of the treatment issue. Because this process is very effective, better-looking gems are available at a lower cost.

Sapphire supply keeps up with demand. While sapphire prices also experienced a quick rise around 1980, the increases were never as dramatic as they were for ruby. After prices settled in the early 1980s, sapphire began to appreciate in value throughout the rest of the decade. Then a decline started in the early 1990s. Perhaps the best explanation for this steady decline is abundance. Major worldwide sources for sapphire are Thailand, Myanmar, Madagascar, Sri Lanka, Vietnam, China, Tanzania, Australia, China, and Montana. In addition, the Kashmir region of India produces an exceptional sapphire that can command huge premiums.

Sapphires from some of these areas originally came to market in less-than-desirable hues. For example, Australian sapphires tended toward the greenish blue and were often very dark. Advancements in heat-treatment processes in the ’90s contributed to a greater supply of better-looking sapphires in the market, thus bringing prices down. The outlook for future supply is very good, so prices should remain stable.

Emerald enhancements affect price. Emeralds began their slide three to four years ago. Why? A simple one-word answer: enhancements. So much negative publicity has surrounded the emerald market that jewelers – and consumers – have shied away from this gem.

Anyone who thinks that emerald enhancements have not hurt the market has not faced reality. Fine emeralds today are selling for about half of what they went for just four years ago. The average price of a 1-ct., fine-quality emerald has dropped from $2,750 four years ago to $1,325 today. In light of emerald’s ancient history, its status as a staple item in jewelry stores, and its marketability as the birthstone for May, this drop is unprecedented.

There is hope. Jewelers and dealers are becoming more familiar with the treatment process. While exact identification of the filler used is not possible for most jewelers, they can at least explain treatments in general to their customers. Companies such as Arthur Groom are educating jewelers about the benefits of their treatment processes and ways to recognize them. Groom recently added a fluorescent tracer to his Gematrat process to aid in identification. This positive step will help. While not all jewelers are accepting of Opticon and other enhancements, they’re becoming more familiar with their presence in the market. Emerald sales won’t stay low forever. Raising the awareness of treatments and full disclosure will bring the market back up.

Tanzanite’s bumpy road. In my tanzanite article (JCK, April 1998, p. 76), I discussed this gem’s rise to “big four” status. Some jewelers report that their sales of tanzanite outpace sales of any other colored gemstone. What has made tanzanite so interesting to follow is that prices have experienced many ups and downs since its discovery and rise to fame.

Tanzanite was made famous in 1969 by Tiffany & Co. when it gave the stone that name. By 1984, prices had peaked at very high levels. One-carat, top-quality gems sold for as much as $750. Miners flocked to the area to capitalize on the popularity and high price. Supplies quickly outpaced demand, and prices plummeted in the late 1980s. In 1991, the Tanzanian government stepped in and sealed off the mining area. They issued only three mining permits, and the supplies became more controlled. However, there was still so much rough and cut tanzanite floating around the market that prices edged downward for the next two years. By 1993, prices were about one-third of the 1984 level.

As dealers sold the gems, new rough circulated at higher prices. Prices began to rise over the next few years, as expected. Just when the predictions rolled in for continued higher prices, an unexpected oversupply hit once again. An enormous quantity of rough had been exported to foreign companies for treatment and faceting and then was dumped on the market, mostly in New York. The volume of rough processed and the purchasing power of these foreign firms enabled dealers to buy tanzanite for less in New York than they could in Tanzania. Prices dropped again. By the end of 1997, prices had bottomed out. Extra-fine, 1-ct. gems sold for only about $250 per carat.

This year has been a rebound year for tanzanite. Prices were higher in Tucson earlier in the year because tanzanite gem auctions in Tanzania were delayed twice last year, causing a shortage. Prices rose approximately 10% earlier this year. Then the tragedy struck in Tanzania – heavy rains caused the mines to flood and collapse. More than 50 miners were killed in the disaster, and the mines were again shut down. As expected, the lack of new mining activity and the demand for tanzanite as the holidays approach are pushing up prices. Some categories have already gone up an additional 30%. Extra-fine tanzanite has jumped up again, this time to about $350 per carat.

Diamond price fluctuations. Although diamond prices are mostly controlled, they do fluctuate. Take the last two years, for example. The last official price increase by De Beers was in July 1996. However, prices have changed by as much as 5% to 15% in some categories. While De Beers may not officially change prices, it does alter the assortment sold to each sightholder. Because certain sizes, shapes, and qualities are withheld, shortages where there is strong demand may cause prices to rise. Round diamond prices have increased in the past two years, with changes as much as 6%.

Historically, diamond prices have always increased. The one exception was 1981-82, when certain diamonds decreased in value after investors had artificially driven up prices in previous years. The 1-ct. D flawless, which rose in value to $65,000, eventually dropped back down to about $15,000. Other diamonds of normal jewelry quality also rose artificially, but not by such dramatic amounts. Therefore, their drop was also smaller.

The diamond trade learned a lesson from this, and it is doubtful the same situation will ever take place again. If De Beers maintains its grip on the diamond trade, prices should continue going up, as history has proved.

Assuming a diamond was purchased for $100 in 1949, the value today would be approximately $2,018.31. Keep in mind there are several factors to consider in examining these figures. When the price of rough goes up, the polished may not increase by the same percentage. The quality will be a factor in how much the price increases. Announced increases are considered an average over all grades sold in the Central Selling Organisation assortment.

Nonetheless, the data are beneficial in hypothetical appraisal situations. For a jeweler discussing the rise of diamond prices throughout history, this information can also be a useful tool. Again, avoid an emphasis on investment. Customers generally buy at retail and sell below wholesale, so the chart could be misleading to them. What the chart illustrates is the confidence in diamond prices over a long time. At least their investment will not devalue, as other luxury items do.

Richard B. Drucker is the president of Gemworld International and publisher of The Guide, a pricing periodical he began in 1982. An international gemstone consultant, he has published numerous books on the jewelry industry.

Diamond Valuation Table
(1949 base price $100)

Date of increase Percent increase Dollar Value
Jan. 1949 $100.00
Sept. 1949 25 125.00
March 1951 15 143.75
Sept. 1951 2.5 147.34
Jan. 1954 2 150.29
Jan. 1955 2.5 154.05
Jan. 1957 5.7 162.83
May 1960 2.5 166.90
March 1963 5 175.24
Feb. 1964 10 192.77
Nov. 1967 16.6 224.77
Sept. 1968 2.5 230.39
July 1969 4 239.60
Nov. 1971 5 251.58
Jan. 1972 5.4 265.17
Sept. 1972 6 281.08
Feb. 1973 11 312.00
March 1973 7 333.84
May 1973 10 367.22
Aug. 1973 10.2 404.68
Dec. 1974 1.5 410.75
Jan. 1975 3 423.07
Oct. 1976 5.75 447.40
March 1977 15 514.51
Dec. 1977 17 601.97
Aug. 1978 30 782.56
Sept. 1979 13 884.30
Feb. 1980 12 990.41
Oct. 1982 2.5 1,015.17
April 1983 3.5 1,050.70
May 1986 7.5 1,129.51
Nov. 1986 7 1,208.57
Oct. 1987 10 1,329.43
May 1988 13.5 1,508.91
March 1989 15.5 1,742.78
March 1990 5.5 1,838.63
Feb. 1993 1.5 1,866.21
Nov. 1995 5 1,959.52
July 1996 3 2,018.31